Local currency used in Ithaca, NYFleeing Vesuvius, New Zealand Edition

(2011, Feasta and Living Economies)

The second part of Fleeing Vesuvius is entitled “Innovation in business, money and finance.” It draws on the main theme of Part I, describing how the current economic crisis is a direct result of fossil fuel scarcity and spiking energy costs. The second section focuses on the link between energy availability and money.

The late Richard Douthwaite is the author of the first and (I feel) best essay in Part II, entitled “The supply of money in an energy scarce world.” He traces the history of money, with special emphasis on the de-linking of money, production and wealth which occurred starting in the 1970s. This disconnect results from the “financialization” of the economies of the so called “industrialized” north. He points out the irony of calling Europe and North America “industrialized,” when currently most manufacturing takes place in developing countries, to take advantage of sweatshop wages. At present so called “industrialized” countries earn most of their profits through banking and other financial services. They also carry most of the global debt burden. Douthwaite finds it even more ironic that they owe most of this debt to so-called “developing” countries.

Getting Rid of Debt-Based Money

Douthwaite goes on to offer specific alternatives to our current debt based money system (under our current system, the one and only way money is created is by going to the bank to take out a loan – it’s called fractional reserve banking. A debt-based monetary system can only function in the presence of indefinite economic growth (see (http://stuartbramhall.aegauthorblogs.com/2011/10/30/documenting-the-collapse-of-capitalism/). Moreover the end of cheap energy also means the end of continuous economic growth. He also explores a number of strategies to facilitate the transition to a new steady state economy (one that doesn’t grow).

Douthwaite proposes to create inflation to eliminate the massive external debt that is suffocating the economies of Europe, North America and Japan. However he wouldn’t hand the money over to bankers, as the Federal Reserve does when they engage in quantitative easing. Instead Douthwaite would have governments create new money that they would spend directly into the economy to fix decaying infrastructure and provide essential public services. This would ensure that the new money would circulate in the economy to stimulate buying and increase jobs – instead of paying astronomical bonuses to CEOs.

Creating Regional and Local Currencies

He also strongly supports the creation of regional and local currencies. This gives poor people access to money when the national currency is in short supply due to recession and deflation. People only have access to the official currency when their products and skills increase corporate profits. Regional and local currencies, on the other hand, provide access to money to anyone with skills and/or products other community members need or want. In addition to boosting support for local business, by requiring that local currencies be spent locally, a pricing scheduled is created that more accurately reflects the work invested and true value to the community. Food production is an excellent example. Small farmers can easily work 16 or more hours a day. Yet owing to competition from large scale factory farms, the “market” price they receive for their crops is rarely enough to support a family.

Douthwaite also explores the possibility of creating a currency based on future energy production, just as early national currencies were based on gold (which will have far less intrinsic value than energy).

Rethinking Financing, Corporate Structure and Property Taxes

Other essays in part II look at alternative methods (other than borrowing and incurring debt) of financing the new energy efficient businesses, farms, and homes. One model favored by several authors is a “limited liability equity partnership.” In an equity partnership, the landowner, builder, and future occupation finance a home or new business by assuming an equity interest in its construction. “Rethinking Business Structures” looks at new corporate structures that place social and environmental considerations ahead of external shareholders.

“Why Pittsburgh’s real estate never crashes” is an interesting essay on Pittsburgh’s land value tax (LVT). It shows how property taxes that differentially tax land at a higher rate than buildings discourage property speculation. It credits LVT for protecting Pittsburgh from the massive foreclosure crisis other US cities faced in 2008. Dan Sullivan, the author of the essay, is the education director of Saving Communities, a Pittsburgh- based non-profit.

To be continued.

Editor's NotesWe have posted Parts 1 and 2 of this series here and here. -KS